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Thursday, 29 April 2010

Merkel demands faster Greek rescue but keeps her purse shut

The Euro has stabilised slightly this morning to 1.32 per US dollar. Greek bond spreads have come in from a staggering 10% to a not quite so staggering 8% so is the crisis on the mend, well I think not. The market has paused for breath and the hedgies etc will be taking some profits and eyeing up the next target. Merkel like St Augustine wants to do something but not quite yet.

The EC has produced its usual solution to its perceived problems with the rating agencies, more regulation! These nasty agencies must be made to think correctly. The announced aid package gets bigger, now €135 bn, but the details get scarcer. The EU does not do clarity, transparency and action. It prefers dither obfuscation and 'constructive' ambiguity. The EU is just a motley collection of squabbling mid Europeans.

I bet the German Bundestag loved being told yesterday by Frenchmen Trichet and Strauss-Kahn that it was up to them to get out the cheque book!

The British journos have been having a great time with their metaphors and hyperbole. Jeremy Warner has a big piece in today' Telegraph with quotes from EU people of cutting off the gangrenous Greek leg before it infects the rest of the Eurozone. Wake up, that has already happened! Everyone is concerned at a rerun of Lehmans and the amount of Greek debt held by German and French banks.

I don't see the latter as a big problem. Any banks that regularly participate in the ECB repo refinancing operations ie all the big Eurozone and British banks will hold a stock of Greek bonds to use as collateral in these operations as these are the cheapest bonds to buy. That is why Trichet saying the ECB will continue to take them as collateral at any credit rating was so important. It is only if the Greeks default these bonds banks will lose money. That is why the EU is in denial over any suggestion of a default but of course they cannot say anything else!

As Warner says, " Dithering is the worst thing you can do in a crisis but with so many moving parts to its name, the Eurozone takes the concept of long winded compromise and inadequate decision making to a whole new plane". Well its not new Jeremy for those who know how the EU does not work.

Many are exercised by the Greek disease spreading to the UK. I do not think it will directly but if the Eurzone economy collapses as a result we will of course be badly affected.

The most potent force at work long term however is the power of TV. Already British TV news is carrying footage of Greek street protests. Recall the effect that pictures of the huge queues tying to get their money out of Northern Rock had in blowing up that crisis. wait till the austerity measures start to bite in Greece and we see on our TV screens riots and burning effigies of the Eurocrats in Athens. Let us hope UKIP is still solvent to capitalise on the wave of EU concern this will generate in the UK but this presumes we get rid of the Pearson Farage Tory pressure group regime and get Nikki, Gerard or John Bufton in to lead UKIP as a proper political party.